BLOGS

The tightrope: why the pipeline stalled

The past three years have been a study in contradictions for UK residential developers. Land was acquired, planning secured, architects briefed — and then the economics shifted beneath their feet.

Build cost inflation, which peaked at rates not seen since the 1970s according to the Building Cost Information Service (BCIS), has left many schemes that underwrote at 2020 or 2021 land values looking marginal or outright unviable today. Materials, labour and finance costs all moved adversely in the same cycle, compressing margins that were already thin in many high-land-value urban markets.

At the same time, the Bank of England's rate hiking cycle — which pushed the base rate to 5.25% and held it there for over a year from mid-2023 — gutted affordability for the first-time buyers and second-steppers that volume housebuilders depend on most. The mortgage market responded: two- and five-year fixed rates at mainstream loan-to-value bands that had sat comfortably below 2% in 2021 were regularly above 5% through much of 2023 and 2024, adding hundreds of pounds a month to the cost of ownership and pushing swathes of prospective buyers back to the rental market.

The result is visible in the pipeline data.

A consented pipeline that isn't converting

REalyse planning data covering the period from 2022 to 2025 tells a pointed story about where schemes are getting stuck.

Across planning applications submitted in 2022, more than 20,000 residential units sit in schemes that have secured planning permission but are categorised as "on hold or shelved" — consented but commercially frozen. A further 12,000-plus units in withdrawn schemes carry the same shelved status. By the 2023 submission cohort, the pattern holds: nearly 17,000 units in granted-but-shelved schemes, and over 10,000 in withdrawn-and-shelved positions.

More telling still is the fall in completions. Schemes submitted in 2022 that have reached project-complete status account for around 118,900 units — but the equivalent figure for 2023 submissions has fallen to around 66,600. That is a near-halving in the rate of conversion from application to delivery within comparable timeframes, suggesting the pipeline is not merely slowing but actively stalling at the construction and delivery stage.

This aligns with NHBC data showing new-home registrations fell to around 99,000 in 2023 — the lowest in a decade — before a modest recovery in 2024. The gap between planning consents granted and homes actually built remains a structural feature of the UK market, but the data suggests economic headwinds have widened it considerably in this cycle.

Where schemes are getting shelved

The shelving pattern is not uniform across the country. REalyse data shows the highest concentrations of on-hold consented units in high-land-value markets — London, the South East and major regional cities — where the gap between current build costs and achievable sales values is most acute. In these markets, viability assessments that once showed comfortable developer returns now frequently require renegotiation of affordable housing obligations, infrastructure contributions or both, adding further delay.

In lower-cost markets in the Midlands, North West and Yorkshire, the picture is more mixed. Some schemes have remained viable, particularly where land was acquired before the 2021-2022 spike, but even here, housebuilders have dialled back start rates, preferring to manage work-in-progress carefully rather than accumulate unsold stock.

The new-build premium problem

Transaction data compounds the challenge for developers targeting the open market.

REalyse transaction records for 2024 show new-build homes trading at an average of between £399,000 and £424,000 across the four quarters — a premium of roughly 20–28% above existing-stock equivalents, which averaged between £330,000 and £349,000 over the same period. While a new-build premium is historically normal, that gap has become a commercial liability in a market where buyers face elevated mortgage rates and have more choice as second-hand stock levels recover.

New-build transaction volumes in 2024 ranged from approximately 24,400 in Q1 to a peak of around 33,500 in Q2, before settling back through the second half of the year. The quarterly pattern reflects typical incentive-driven sales cycles — end-of-year completions, Help to Buy successor scheme deadlines and developer cashflow pressures — but the underlying demand is structurally softer than developers planned for three or four years ago.

Divergent signals from the major house price indices — Nationwide, Halifax and Land Registry frequently diverge by two to three percentage points in any given month — have added a further layer of uncertainty, making it harder for developers to underwrite future phases with confidence. When one index prints flat and another prints a 3% annual gain, the business case for a 500-unit phase two becomes genuinely difficult to stress-test.

Product mix is shifting — but not fast enough

In response, many larger developers have been quietly pivoting their product mix, though the transition is slower than the market shift demands.

Build-to-rent (BTR) has emerged as the primary release valve, with REalyse planning data tracking a growing pipeline of BTR-designated units as developers reposition consented for-sale schemes. The logic is compelling: a single institutional purchase of an entire block eliminates the drip-feed sales risk that now defines the open market, and rental demand has remained robust even as purchase demand softened.

Affordable and shared-ownership tenures have also expanded as a proportion of many developers' outputs, partly by necessity — negotiating down Section 106 obligations often requires offering a higher affordable percentage in exchange — and partly because housing associations and registered providers, though themselves under financial pressure, represent a more predictable route to revenue than the open market.

Mid-market and premium product, by contrast, has proved more resilient than expected at the top end. Buyers purchasing at £600,000 or above with large deposits or cash are far less sensitive to mortgage rate movements, and REalyse data shows asking price discounts in this segment remaining narrower than in the £250,000–£400,000 range where rate-sensitivity is most acute.

The policy backdrop: ambition versus viability

Against all of this, the government is pursuing its most explicit housebuilding target in a generation: 1.5 million new homes over this parliament, underpinned by revised National Planning Policy Framework (NPPF) guidance and a restored mandatory housing target regime for local authorities.

The political ambition is clear. The economic headwinds are equally clear.

Developers broadly welcome the planning reform signals — mandatory targets, faster decisions and a clearer framework for large sites should in theory accelerate the front end of the pipeline. But planning permission alone does not build homes. The industry has consistently argued that viability — the gap between what a scheme costs to build and what homes can be sold or rented for — is the primary constraint, not planning per se.

With build costs remaining elevated well above pre-pandemic baselines and the Bank of England's base rate still significantly above the zero-bound era that framed most recent land deals, that viability gap has not closed sufficiently to unlock the shelved pipeline at scale. Until sales values rise further, build costs deflate meaningfully, finance costs fall, or some combination of the three materialises, the pipeline will remain constrained.

REalyse data suggests that in many markets the most viable near-term opportunities lie in existing consented schemes with legacy land values, mixed-tenure structures that spread revenue risk, and locations with strong rental demand as a backstop — characteristics that allow developers to flex between tenures as market conditions evolve.

Outlook: cautious optimism, contingent on rate relief

The trajectory for the UK development sector depends heavily on two variables: the path of interest rates and the speed at which build cost inflation moderates.

On rates, there is cautious grounds for optimism. With the Bank of England in an easing cycle and swap rates drifting lower through 2024 into 2025, mortgage products have begun to improve, and buyer enquiry data from Rightmove and Zoopla has shown tentative recovery. If that feeds through into sustained sales velocity — rather than a brief pre-election or seasonal spike — some of the shelved pipeline could begin to move.

On build costs, the picture is more nuanced. Materials costs have stabilised from their 2022 peaks, but labour — particularly in trades — remains tight in many markets, and contractors are understandably reluctant to lock in fixed-price contracts that leave them exposed to another inflation spike.

For developers able to navigate both pressures, the prize is significant: a structural undersupply of housing in virtually every major UK market, growing rental demand, and a policy environment that is at least directionally supportive. The tightrope is real. But it leads somewhere.